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0 Question 4 You have been asked to help a British client who is scheduled to pay EUR4,500,000 in 91 days from today. Assume that
0 Question 4 You have been asked to help a British client who is scheduled to pay EUR4,500,000 in 91 days from today. Assume that your client can borrow and lend pounds at 6% p.a. The interest rate is for a 365-day year. A. Describe the nature of your client's transaction exchange risk. (2 points) 8 pts B. What is the option cost for a 91-day maturity and a strike price of GBP0.85/EUR to hedge the transaction? The option premiums are GBP0.0037/EUR for calls and GBP0.0125/EUR for puts. (2 points) C. What is the maximum pound cost your client will experience in 91 days? (2 points) D. Determine the value of the spot rate (GBP/EUR) for settlement in 91 days that makes your client indifferent ex post to having done the option transaction or a forward hedge if the forward rate for delivery in 91 days is GBP0.84/EUR. (2 points) Edit View Insert Format Tools Table
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